Key Changes Impacting Individual Income Taxes

As you may know, the Tax Cuts and Jobs Act significantly altered the Federal tax code at the end of December 2017, and there have been several law changes that impact the 2018 tax year. Individuals will see changes in tax rates and brackets, suspension of the personal exemption, an increase to the standard deduction and a reduction in the amount and types of itemized deductions allowable.

Here are a few of the key changes from last year’s tax bill impacting individual income taxes for 2018.

The impact of these new rules will vary by individual circumstances. Some taxpayers will see an increase in their tax liability as a result of the new tax legislation and some will see a decrease. For a better understanding of how these changes will impact your tax situation specifically, you should consult with your tax professional or advisory team.

Tax brackets

The top federal marginal rate dropped from 39.6% to 37%, and the income thresholds for each bracket increased. The so-called "marriage penalty" is nearly eliminated.

Alternative Minimum Tax (AMT)

The vast majority of individuals will not fall subject to AMT this year due to changes in itemized deductions (discussed below), and higher exemption and phase-out amounts.

Personal Exemption

The personal exemption of $4,050 has been eliminated.

Standard deduction

The standard deduction was increased from $6,350 to $12,000 for individuals, $24,000 for joint filers. This will decrease the number of taxpayers who qualify for itemizing their deductions (although most taxpayers who have mortgages will still be itemizing).

Child Tax Credit

The credit has doubled from $1,000 to $2,000, and the phase-out threshold increased significantly so more families will qualify.

Deductible expenses

There have been limitations and eliminations of various deductions including state/local/property taxes, mortgage interest, investment management fees and tax preparation fees. These limitations and eliminations, along with the higher standard deductions, will push many taxpayers into taking the Standard Deduction.

  • A maximum deduction of $10,000 per year will be allowed for state and local income taxes, sales taxes and property taxes combined.
  • Mortgage interest on home acquisition debt acquired after December 15, 2017 will be limited to a $750,000 loan balance (down from $1,000,000). Interest on home equity loans is no longer deductible with the exception of amounts used to buy, build, or substantially improve the home.
  • Miscellaneous itemized deductions previously subject to the 2% threshold have been eliminated completely.